Systems and methods for providing enhanced volume-weighted average price trading

ABSTRACT

Systems and methods for providing trading using an eVWAP price in an illiquid market are provided. In an illiquid market there may be little or no actual trades. During a trading period, the eVWAP price is therefore determined from not only trades, but also unmatched bids and offers. The eVWAP price is determined when new information becomes available or at a specified time interval. The final eVWAP price is determined when the sampling period ends. Once the final eVWAP price is determined, the value of the final eVWAP price is published for use as a price to settle a contract.

CROSS-REFERENCE TO RELATED APPLICATIONS

This application claims the benefit of U.S. provisional application No.60/512,029, filed Oct. 17, 2003, which is hereby incorporated byreference herein in its entirety.

BACKGROUND OF THE INVENTION

The present invention relates to systems and methods for calculating anenhanced volume-weighted average price, and more particularly to tradingsystems that allow traders to place orders on average price contractsbased on trades, bids, and offers.

Electronically based trading systems have gained widespread popularityover the years. Such trading systems are frequently used for tradingitems ranging from financial instruments (such as stocks, bonds,currency, futures, contracts, etc.) to used household goods (such as oldrecords, baseball cards, antiques, etc.). In many of these tradingsystems, bid/offer-hit/lift processes are used to negotiate a sale of agiven item. In connection with such processes, bids and/or offers foritems are entered into a trading system and a hit or lift is submittedin response to a bid or offer, respectively, to agree to a sale, or apurchase.

Historically, traders use benchmarks to evaluate their trades.Determining the volume-weighted average price (hereinafter the “VWAP”)is one of the most common trade evaluation benchmarks. Traders, brokers,institutional investors, and managers determine the quality of theirtrades by calculating the VWAP and comparing the VWAP to the prices ofwhich their trades were executed. For example, if a trader purchased astock today at a price lower than the current cumulative VWAP, thetrader bought the stock at a good price—i.e., better than the averagebuyer of the stock. On the other hand, if the trader bought the stock ata price higher than the VWAP, then the trader overpaid for the stockrelative to other buyers of the day. Traders often monitor the VWAP to,for example, predict when short term buying and selling opportunitiesmay arise.

There are markets that provide trading data such that the VWAP may becalculated. One embodiment of an interactive trading system that allowstraders to trade on the VWAP is described in co-pending,commonly-assigned U.S. patent application Ser. No. 10/678,582, filedOct. 2, 2003, and U.S. Provisional Application No. 60/415,843, filedOct. 2, 2002, which are hereby incorporated by reference herein in theirentireties. Trading on the VWAP may provide an opportunity for buyersand sellers to buy or sell items at a price that is the VWAP price or ata price that closely tracks the VWAP price.

However, the conventional VWAP may not be calculated for an illiquidmarket or a temporarily illiquid market which has little or no volume oftrades. Illiquid markets and temporarily illiquid markets that havelittle or no volume of trades do not allow traders to buy and sell itemswithout causing a significant and possibly disproportionate pricechange.

Therefore, it would be desirable to provide traders with an opportunityto evaluate instruments traded in illiquid markets or temporarilyilliquid markets using an approach for calculating an enhanced VWAPprice. It would also be desirable to provide an enhanced VWAP price, foran instrument, that may be used as a basis for trading derivatives ofthat instrument (i.e., the enhanced VWAP price may be used to mark aclosing price for which derivative contracts may settle).

SUMMARY OF THE INVENTION

It is therefore an object of this invention to provide traders with anopportunity to evaluate instruments traded in illiquid markets ortemporarily illiquid markets using an approach for calculating anenhanced VWAP price (hereinafter “eVWAP”). It is also an object of thisinvention to provide an eVWAP price, for an instrument, that may be usedas a basis for trading derivatives of that instrument (i.e., the eVWAPprice may be used to mark a closing price for which derivative contractsmay settle).

These and other objects are accomplished in accordance with theprinciples of the present invention by providing systems and methodsthat provide traders with an eVWAP price that uses unmatched bid andoffer prices to support or back up traded price volumes over apredetermined sampling period or trading period, thereby alleviating theabove-mentioned difficulties. Such an approach may be used for illiquidmarkets or temporarily illiquid markets where there may be little or noactual trades. The approach for calculating the eVWAP price may includeadjusting the eVWAP price using data (e.g., price and size information)from unmatched bids and offers. Unmatched bids and offers may be thosebids and offers that have not been hit or lifted.

As used herein, the “eVWAP” or “eVWAP price” is a weighted average pricebased on trade data (e.g., the prices and volume of trades) andunmatched bid and offer data (e.g., bid price, offer price, etc.) doneon one or more items within a specified sampling period. As thespecified sampling period progresses, all trade prices and sizes, bidprices and sizes, and offer prices and sizes of an item are collected.In response to collecting the data entered by traders, the eVWAP may becalculated based on the collected trade, bid, and offer data as theyappear during the sampling period. For example, an eVWAP price may berecalculated when new trade, bid, or offer data becomes available, andmay be published to the market as the eVWAP price builds during thesampling period.

In an illiquid market, publishing the eVWAP price during the samplingperiod may attract further liquidity. Since the eVWAP price includes bidand offer data, in addition to trade data (which is all the VWAPgenerally includes), changes in the eVWAP price will be more active thanthe VWAP and may encourage traders to enter bids and offers. Additionalbids and offers may in turn create a more liquid market.

In some embodiments, the collected bids and offers may be limited to aparticular collar (i.e., a predetermined price range in which bids andoffers may be accepted). Bids and offers outside of the collar arepreferably not used in the calculation of the eVWAP price. For example,all trade data may be used to calculate the eVWAP price, while only bidsand offers within the collar are used to calculate the eVWAP price. Thecollar may be adjusted as the eVWAP price builds in reference to acumulative “reference price.” The “reference price” is preferablycalculated as the eVWAP sampling period progresses (e.g., in real-timeor at another suitable periodic interval). Although data from unmatchedbids and offers may be used to calculate the eVWAP price, it should benoted that an actual trade may have a substantially larger influence onthe eVWAP price than unmatched bids and offers. That is, an actual trademay reduce the significance of bid and offer values in the eVWAP pricedetermined at the end of the sampling period.

BRIEF DESCRIPTION OF THE DRAWINGS

The above and other objects and advantages of the invention will beapparent upon consideration of the following detailed description, takenin conjunction with accompanying drawings, in which like referencerefers to like parts throughout, and in which:

FIG. 1 is a flow diagram of a main process that may be used to providean enhanced volume-weighted average price with certain embodiments ofthe present invention;

FIG. 2 is a block diagram of a system that may be used to implementprocesses and functions of certain embodiments of the present invention;and

FIG. 3 is a block diagram of a workstation, a server, and a back officeclearing center that may be used to implement the processes andfunctions of certain embodiments of the present invention.

DETAILED DESCRIPTION OF THE INVENTION

This invention relates to creating systems and methods for calculatingan enhanced volume-weighted average price based on trades, bids, andoffers. The following embodiment of the invention relates to theelectronic trading of fixed income related instruments—e.g., such as theUnited States Treasuries, United Kingdom Gilts, European GovernmentTreasuries, and Emerging Market debts, swaps, repos, etc. This inventionmay also be used for the electronic trading of securities or otherfinancial instruments, such as stocks or currencies, and is not limitedonly to the trading of fixed income related instruments. Nevertheless,this embodiment does not limit the invention to this particular subjectmatter. Rather, it is provided for illustration of the invention and notto limit it to a particular commodity or market.

It should also be noted that although the following embodiment of theinvention relates specifically to the trading of a single instrument,such as United States 30 Year U.S. Treasury bonds, this embodiment isnot limited only to the trading of a single instrument. Rather, theinvention may also be applied to the trading of a basket of instruments.For example, traders may trade on the eVWAP price on the net pricemovements of the current two-year United States Treasury bills,three-year and five-year United States Treasury notes, and ten-yearUnited States Treasury bonds.

An eVWAP price may be calculated that provides traders with anopportunity to trade in illiquid markets or temporarily illiquid marketswhere there may be little or no actual trades. The eVWAP price may useunmatched bid and offer prices to support or back up traded pricevolumes over a predetermined sampling period or trading period. Thisapproach may include adjusting the eVWAP price using data (e.g., priceand size information) from unmatched bids and offers of an instrument.The eVWAP price may be used as a basis for trading derivatives of thatinstrument (i.e., the eVWAP price may be used to mark a closing pricefor which derivative contracts may settle).

As mentioned previously, the collected bids and offers may be limited toa particular collar such that those bids and offers outside of thecollar are preferably not used in calculation of the eVWAP price.However, if desired, a collar may not be imposed and all bids and offersmay be used in calculation of the eVWAP price. If used, the collar maybe adjusted as the eVWAP price builds in reference to a cumulative“reference price.” The “reference price” is preferably calculated beforethe eVWAP sampling period progresses. The reference price may be thebid-offer spread at the starting time, which is preferably calculatedusing the following equation:${{eVWAP}_{0} = \frac{\left( {{bid\_ price}_{0} \times {bid\_ size}_{0}} \right) + \left( {{offer\_ price}_{0} \times {offer\_ size}_{0}} \right)}{{bid\_ size}_{0} + {offer\_ size}_{0}}},$where eVWAP₀ is the initial reference price, and bid_price₀, bid_size₀,offer_price₀, and offer_price₀ are the bid price, bid size, offer price,and offer size, respectively, of an instrument at the start time of theeVWAP sampling period.

If there is not a bid-offer spread at the start of the sampling period,the reference price is the last traded price (i.e.,eVWAP₀=last_trade_price) and the total trade size is the last tradedsize (i.e., total_trade_size₀=last_trade_size). It should be noted thatif the last traded price is lower than the current bid or higher thanthe current offer, then the start point will be the bid or offer,respectively.

If there is no last traded price, then the reference price is theprevious closing or reference price (i.e., eVWAP₀=closing_price) and thetotal trade size is set to 1 (i.e., total_trade_size₀=1).

The eVWAP price may be recalculated as new data relating to trades,bids, and offers is received. When the new data received is a trade, thetraded price is multiplied by the trade size and added to the indicativeprice (i.e., eVWAP_(t−1)) multiplied by the previous total trade size.The result is divided by the total size traded. When a trade isreceived, the current eVWAP price may be calculated using the followingequation:${{eVWAP}_{t} = \frac{\left( {{trade\_ price}_{t} \times {trade\_ size}_{t}} \right) + \left( {{eVWAP}_{t - 1} \times {total\_ trade}{\_ size}_{t - 1}} \right)}{{total\_ trade}{\_ size}_{t}}},$where total_trade_size_(t)=total_trade_size_(t−1)+trade_size_(t).

When the new data received is a bid, the eVWAP price is adjusted towardsthe bid. For example, if the bid is lower than the indicative price, theupdated eVWAP price is also adjusted lower. When the new data receivedis an offer, the eVWAP price is adjusted towards the offer. For example,if the offer is lower than the indicative price, the updated eVWAP priceis also adjusted lower. Although the algorithm may be applicable to anykind of instrument and market type, in the preferred embodiment, theinstrument is traded in a normal market.

When a bid and an offer are received simultaneously, the eVWAP price isadjusted according to the accumulated bid and offer adjustments. Thatis, the adjustment is equivalent to the sum of the bid and offeradjustments. If the indicative price is between the bid and the offer,then the bid adjustment generates a negative number, while the offeradjustment generates a positive number. If the existing indicative priceis higher than the newly received bid and the newly received offer, thenthe bid adjustment and the offer adjustment both generate a negativenumber. If the existing indicative price is lower than the newlyreceived bid and the newly received offer, then the bid adjustment andthe offer adjustment both generate a positive number. When a bid and/oroffer is received, the current eVWAP price is preferably calculatedusing the following equation:${eVWAP}_{t} = \left( {{eVWAP}_{t - 1} + \frac{\begin{matrix}{{bid\_ flag}*\left( \frac{{bid\_ size}_{t}^{{bid\_ size}{\_ flag}}}{{total\_ trade}{\_ size}_{t - 1}} \right)^{{trade\_ ratio}{\_ flag}}*} \\{{bid\_ size}{\_ ratio}^{{bid\_ ratio}{\_ flag}}*\left( {{bid}_{t} - {eVWAP}_{t - 1}} \right)}\end{matrix}}{\left( {1 + {{bid\_ scaling}{\_ factor}*{{{bid}_{t} - {eVWAP}_{t - 1}}}}} \right)^{bid\_ exponent}} + \frac{\begin{matrix}{{offer\_ flag}*\left( \frac{{offer\_ size}_{t}^{{offer\_ size}{\_ flag}}}{{total\_ trade}{\_ size}_{t - 1}} \right)^{{trade\_ ratio}{\_ flag}}*} \\{{offer\_ size}{\_ ratio}^{{offer\_ ratio}{\_ flag}}*\left( {{offer}_{t} - {eVWAP}_{t - 1}} \right)}\end{matrix}}{\left( {1 + {{offer\_ scaling}{\_ factor}*{{{offer}_{t} - {eVWAP}_{t - 1}}}}} \right)^{offer\_ exponent}}} \right)$

These two algorithms may be combined to calculate an eVWAP price thattakes into account trades, bids, and offers as they appear during thespecified sampling period. The eVWAP, during the sampling period, ispreferably calculated using the following algorithm:${eVWAP}_{t} = {{{trade\_ flag}*\left( \frac{\begin{matrix}\left( {{{trade\_ price}_{t}*{trade\_ size}_{t}} +} \right. \\\left. {{eVWAP}_{t - 1}*{total\_ trade}{\_ size}_{t - 1}} \right)\end{matrix}}{{total\_ trade}{\_ size}_{t}} \right)} + {{bidoffer\_ flag}*\left( {{eVWAP}_{t - 1} + \frac{\begin{matrix}{{bid\_ flag}*\left( \frac{{bid\_ size}_{t}^{{bid\_ size}{\_ flag}}}{{total\_ trade}{\_ size}_{t - 1}} \right)^{{trade\_ ratio}{\_ flag}}*} \\{{bid\_ size}{\_ ratio}^{{bid\_ ratio}{\_ flag}}*\left( {{bid}_{t} - {eVWAP}_{t - 1}} \right)}\end{matrix}}{\left( {1 + {{bid\_ scaling}{\_ factor}*{{{bid}_{t} - {{eVWAP}_{t - 1}\left.  \right)^{bid\_ exponent}}}}}} \right.} + \frac{\begin{matrix}{{offer\_ flag}*\left( \frac{{offer\_ size}_{t}^{{offer\_ size}{\_ flag}}}{{total\_ trade}{\_ size}_{t - 1}} \right)^{{trade\_ ratio}{\_ flag}}*} \\{{offer\_ size}{\_ ratio}^{{offer\_ ratio}{\_ flag}}*\left( {{offer}_{t} - {eVWAP}_{t - 1}} \right)}\end{matrix}}{\left( {1 + {{offer\_ scaling}{\_ factor}*{{{offer}_{t} - {{eVWAP}_{t - 1}\left.  \right)^{offer\_ exponent}}}}}} \right.}} \right)}}$where:total_trade_size_(t)=total_trade_size_(t−1)+trade_size_(t));trade_flag={0,1};bidoffer_flag={0,1};offer_flag={0,1};bid_flag={0,1};bid_size_flag={0,1};offer_size_flag={0,1};trade_ratio_flag={0,1};bid_ratio_flag={0,1};offer_ratio_flag={0,1};|bid_(t)−eVWAP_(t−1)| is the absolute value of the difference betweenbid_(t) and eVWAP-_(t−1);|offer_(t)−eVWAP_(t−1)| is the absolute value of the difference betweenoffer_(t) and eVWAP_(t−1); andbid_scaling_factor, offer_scaling_factor, bid_size_ratio,offer_size_ratio, bid_exponent, and offer_exponent are other parameters.

The values set for the other parameters may depend upon the market inwhich the eVWAP is operating. For example, certain factors, such as thesize, liquidity, volatility, and any other suitable factors of themarket, may play a role in determining the values for these otherparameters. Once the values for these other parameters in a particularmarket are set, these values may remain constant for that marketthroughout the sampling period.

As shown above in the eVWAP algorithm, the “size ratio” (e.g.,bid_size_ratio and offer_size_ratio) may be used to show the importanceof bid and offer data with respect to trade data and is preferably aconstant value. The “size ratio,” along with other parameters, does notneed to be a constant value and may be a function of other terms orparameters. In some embodiments, bids and offers may be given equalweight. It should also be noted that the effect of bids and offers toadjust the eVWAP price decreases with the total traded size.

The eVWAP_(t−1) is preferably calculated as the eVWAP sampling periodprogresses (e.g., in real-time or at another suitable interval for acertain period). As shown, the effect of bids and offers to adjust theeVWAP price decreases with the exponent of the absolute value of thedifference between the bid/offer price and the indicative price (oreVWAP_(t−1)). The impact on the eVWAP will decrease with the increase ofthe difference between the bid/offer price and the indicative pricebecause the difference between the bid/offer price and the indicativeprice is in the denominator of the algorithm. That is, bid/offer pricesthat are closer to the indicative price will produce a greateradjustment to the eVWAP because bid/offer prices closer to theindicative price are likely more accurate indicators of how the eVWAPshould be adjusted. The “scaling factor” (e.g., bid_scaling_factor andoffer_scaling_factor) may be a multiplier, such as a multiplier of thediscount rate, and is preferably a constant value. The scaling factormay be used to inflate or deflate the importance of the proximitybetween the bid/offer price and the indicative price.

Flags may also be used to indicate the type of data that is beingreceived, such as, for example, trading data, bid data, offer data, etc.Each flag may be set to a value such as a “0” to indicate that the flagis turned off or a “1” to indicate that the flag is turned on. Anexample of settings for various flags is shown in Table 1. TABLE 1Action Flag Trade trade_flag = {0, 1} If the next information receivedis a trade, then trade_flag = 1, bidoffer_flag = 0, bid_flag = 0, andoffer_flag = 0. Otherwise (no trade), trade_flag = 0. Bid bidoffer_flag= {0, 1} and bid_flag = {0, 1} If the received data is related to a bid,then bidoffer_flag = 1, bid_flag = 1, and trade_flag = 0. Otherwise (nobid), bid_flag = 0. Offer bidoffer_flag = {0, 1} and offer_flag = {0, 1}If the received data is related to an offer, then bidoffer_flag = 1,offer_flag = 1, and trade_flag = 0. Otherwise (no offer), offer_flag =0. Simultaneous bidoffer_flag = {0, 1}, bid_flag = {0, 1}, Bid and Offerand offer_flag = {0, 1} If the received information is both a bid and anoffer, then bidoffer_flag = 1, bid_flag = 1, offer_flag = 1, andtrade_flag = 0. Bid Size and bid_size_flag ={0, 1}, offer_size_flag ={0, 1} Offer Size Bid_size_flag and offer_size_flag are used to set thesize ratio to bid_size_(t)/total_trade_size_(t−1) or to1/total_trade_size_(t−1) as bid_size⁰ = 1. Similarly, offer_size⁰ = 1for offer_size_flag = 0. The “size flag” may be set if it is desirableto factor in the size of the bid/offer. For example, in the beginning ofa sampling period the size flag may be set to zero to dampen the impactbids/offers have on eVWAP since the size ratio will result in a numberless than zero (i.e., 1/total_trade_size_(t−1)). It may be desirable todampen the impact bids/offers have on the eVWAP in the beginning becausethere will be little volume since it is an illiquid market or atemporarily illiquid market. At times, accounting for the bid/offer sizemay create undesirable spikes in the eVWAP price. Trade Ratiotrade_ratio_flag = {0, 1} trade_ratio_flag enables or disables theterms:$\frac{{bid\_ size}_{t}^{{bid\_ size}{\_ flag}}}{{total\_ trade}{\_ size}_{t - 1}}\quad{and}\quad\frac{{offer\_ size}_{t}^{{offer\_ size}{\_ flag}}}{{total\_ trade}{\_ size}_{t - 1}}$When trade_ratio_flag = 1: $\begin{matrix}{\left( \frac{{bid\_ size}_{t}^{{bid\_ size}{\_ flag}}}{{total\_ trade}{\_ size}_{t - 1}} \right)^{1} = {\frac{{bid\_ size}_{t}^{{bid\_ size}{\_ flag}}}{{total\_ trade}{\_ size}_{t - 1}}\quad{and}}} \\{{\left( \frac{{offer\_ size}_{t}^{{offer\_ size}{\_ flag}}}{{total\_ trade}{\_ size}_{t - 1}} \right)^{1} = \frac{{offer\_ size}_{t}^{{offer\_ size}{\_ flag}}}{{total\_ trade}{\_ size}_{t - 1}}}\quad}\end{matrix}\quad$ When trade_ratio_flag = 0, ${\begin{matrix}{\left( \frac{{bid\_ size}_{t}^{{bid\_ size}{\_ flag}}}{{total\_ trade}{\_ size}_{t - 1}} \right)^{0} = {1\quad{and}}} \\{{\left( \frac{{offer\_ size}_{t}^{{offer\_ size}{\_ flag}}}{{total\_ trade}{\_ size}_{t - 1}} \right)^{0} = 1}\quad}\end{matrix}\quad}\quad$ The trade_ratio_flag may be used to adjust theimpact on the eVWAP of the bid/offer size as compared with the totalsize of the trade.

An example of settings for various other parameters is shown in Table 2.The settings of these parameters in Table 2 may be optional and thevalues may be chosen in any way that is desirable. TABLE 2 ActionVariable If bid_exponent = 0 bid_(t) > eVWAP_(t−1) If offer_exponent = 0offer_(t) < eVWAP_(t−1)

In some embodiments, lower and upper bounds may be set for the bid andoffer prices. In this way, the bids and offers may be limited to aparticular collar. For example, the upper bound for bid and offer pricesmay be calculated using the following equation:${{bid\_ upper}{\_ bound}} = {{eVWAP}_{t} + \frac{1}{\begin{matrix}{{{bid\_ scaling}{\_ factor}*{bid\_ exponent}} -} \\{{bid\_ scaling}{\_ factor}}\end{matrix}}}$${{offer\_ upper}{\_ bound}} = {{eVWAP}_{t} + \frac{1}{\begin{matrix}{{{offer\_ scaling}{\_ factor}*{offer\_ exponent}} -} \\{{offer\_ scaling}{\_ factor}}\end{matrix}}}$Similarly, the lower bound for bid and offer prices may be, for example:${{bid\_ lower}{\_ bound}} = {{eVWAP}_{t} + \frac{1}{\begin{matrix}{{{bid\_ scaling}{\_ factor}*{bid\_ exponent}} -} \\{{bid\_ scaling}{\_ factor}}\end{matrix}}}$${{offer\_ lower}{\_ bound}} = {{eVWAP}_{t} + \frac{1}{\begin{matrix}{{{offer\_ scaling}{\_ factor}*{offer\_ exponent}} -} \\{{offer\_ scaling}{\_ factor}}\end{matrix}}}$However, any other suitable approach for calculating upper and lowerbounds may also be used. The upper_bound equations may calculate themaximum point and the lower_bound equations may calculate the minimumpoint for the above-mentioned eVWAP algorithm for any scaling_factorvalues and exponent values. Based at least in part on the determinedmaximum and minimum points, the scaling factor value and exponent factorvalue may be set. For some chosen scaling_factor values and exponentvalues, the derivative of the above-mentioned eVWAP algorithm may notlead to determining a maximum and minimum point. In this scenario,another approach may be used to calculate the upper and lower bounds.For example, a percentage deviation from the reference price may be usedas the upper and lower bounds.

In some embodiments, bid sizes and offer sizes may not be included inthe algorithm for calculating the eVWAP price. This may be achieved bysetting the bid_size_flag and the offer_size-flag to zero.

One embodiment of an eVWAP trading process that may be used inaccordance with the principles of the present invention is illustratedin process 10 of FIG. 1. In practice, one or more steps shown may becombined with other steps, performed in any suitable order, or deleted.At step 12, a predetermined sampling period or trading period may begin.At step 14, the starting value for the reference price (or eVWAP₀) maybe set. As described above, the starting value may be calculated fromthe bid-offer spread, the last traded price and last traded size, thecurrent bid if the last traded price is lower than the current bid, thecurrent offer if the last traded price is lower than the current offer,the previous closing price and setting the total trade size to 1, or inany other suitable manner.

As described above, the eVWAP may be recalculated during the samplingperiod as new trade, bid, or offer data becomes available (i.e., theeVWAP may be recalculated in real-time). The eVWAP may also berecalculated at periodic time intervals. As shown in step 16, if theupdates to the eVWAP take place at specified or periodic time intervals,a determination may be made as to whether a specified time interval haselapsed at step 18. The specified time intervals may be every ‘n’seconds, every ‘n’ minutes, every ‘n’ hours or any other suitablefunction of time. In response to the specified time interval elapsing,the eVWAP may be calculated at step 22.

If the updates to the eVWAP does not take place at specified or periodictime intervals, then, at step 20, the eVWAP may be recalculated bydetermining if new trade, bid, or offer information becomes available.New bid or offer information may be new bids or offers. New bid or offerinformation may also be reflected in changes of the price, the size, orboth the price and size of previously entered bids or offers. If newinformation does become available, then the eVWAP may be calculated atstep 22 in accordance with the algorithm described above in paragraph 26or by any other suitable algorithm. As described above, steps of process10 may be deleted. For example, steps 16 and 18 may be deleted and step20 may be performed immediately after step 14.

In response to determining that a specified time interval has notelapsed at step 18, in response to determining that new trade, bid, oroffer information has not become available at step 20, or in response tocalculating the eVWAP at step 22, a determination may be made as towhether the sampling period has ended at step 24. If the sampling periodhas not ended then process 10 may return to step 16 and follow the stepsdescribed above. Once the sampling period has ended, the finaleVWAP_(l t may be calculated at step 26 in accordance with the algorithm described above in paragraph 26 or by any other suitable algorithm.)

At step 28, the final eVWAP_(t) may be published to the market. Thefinal eVWAP_(t) may be published to the market in any suitable form. Forexample, the final eVWAP_(t) may be published by e-mail, by fax, on aticker, on television, by posting the value to a server, by posting thevalue to a web site or by any other suitable form of publication. If thefinal eVWAP_(t) is published by being posted to a server, the value maybe posted to a local server, to an FTP server, to a third-party vendor'sserver (e.g., Reuters®, Bloomberg®, or any other third-party vendor), orto any other suitable server. The final eVWAP price may then be used asa basis for trading derivatives of an instrument (i.e., the eVWAP pricemay be used to mark a closing price for which derivative contracts maysettle).

An electronic trading application may be provided to provide traderswith the eVWAP price. The eVWAP price may be recalculated to account fortrades, bids, and offers as received during the eVWAP specified samplingperiod. It will be understood that the electronic trading applicationmay be any suitable, software, hardware, or both configured to implementthe features of the present invention. The electronic tradingapplication may be located at a central location (e.g., a centralserver). In another suitable approach, the electronic tradingapplication may reside among different locations (e.g., a network).

In one particular embodiment, the electronic trading application mayinclude client-side software, hardware, or both. For example, theelectronic trading application may encompass one or more Web-pages orWeb-page portions (e.g., via any suitable encoding, such as XML, ColdFusion, etc.).

Although the electronic trading application is described herein as beingimplemented on user computer equipment, this is only illustrative. Theelectronic trading application may be implemented on any suitableplatform (e.g., personal computer, palmtop computer, laptop computer,personal digital assistant, cellular phone, etc.) to provide suchfeatures.

Referring to FIG. 2, an exemplary system 100 for implementing thepresent invention is shown. As illustrated, system 100 may include oneor more trading workstations 102. Workstations 102 may be local orremote, and are connected by one or more communications links 104 to acomputer network 106 that is linked via a communications link 108 to aserver 110.

In system 100, server 110 may be any suitable server, processor,computer, or data processing device, or combination of the same.Computer network 106 may be any suitable computer network including theInternet, an intranet, a wide-area network (WAN), a local-area network(LAN), a wireless network, a digital subscriber line (DSL) network, aframe relay network, an asynchronous transfer mode (ATM) network, avirtual private network (VPN), or any combination of any of the same.Communications links 104 and 106 may be any communications linkssuitable for communicating data between workstations 102 and server 110,such as network links, dial-up links, wireless links, hard-wired links,etc. Workstations 102 enable a trader to engage in the trading process.Workstations 102 may be personal computers, laptop computers, mainframecomputers, dumb terminals, data displays, Internet browsers, personaldigital assistants (PDAs), two-way pagers, wireless terminals, portabletelephones, etc., or any combination of the same.

A back office clearing center 114 may also be connected to server 110 ofthe trading system via a communications link 112. Clearing center 114may be any suitable equipment, such as a computer, or combination of thesame, for causing trades to be cleared and/or verifying that trades arecleared. If desired, server 110 may contain multiple processors.Communications link 112 may be any communications link suitable forcommunicating data between server 110 and back office clearing center114, such as network links, dial-up links, wireless links, hard-wiredlinks, etc.

The server, the back office clearing center, and one of theworkstations, which are depicted in FIG. 2, are illustrated in moredetail in FIG. 3. Referring to FIG. 3, workstation 102 may includeprocessor 202, display 204, input device 206, and memory 208, which maybe interconnected. In a preferred embodiment, memory 208 contains astorage device for storing a workstation program for controllingprocessor 220. Memory 226 also preferably contains an eVWAP tradingapplication 210 according to the invention.

eVWAP trading application 210 may preferably include an applicationprogram interface (not shown), or, as described above, eVWAP tradingapplication 210 may be resident in the memory of server 110. In thisembodiment, the electronic trading application may contain eVWAP tradingapplication 210 and an application program interface (not shown) as adiscrete application from the electronic trading application which alsomay be included therein. The only distribution to the trader may then bea Graphical User Interface which allows the trader to interact witheVWAP trading application 210 resident at server 110.

Processor 202 uses the workstation program to present on display 204 theelectronic trading application and trading information relating tomarket conditions received through communication link 104 and tradingcommands and values transmitted by a trader of workstation 102.Furthermore, input device 206 may be used to manually enter commands andvalues in order for these commands and values to be communicated to theelectronic trading application.

Server 110 may include processor 220, display 222, input device 224, andmemory 226, which may be interconnected. In a preferred embodiment,memory 226 contains a storage device for storing information relating tomarket conditions received through communication link 108 or throughother links, and also receives trading commands and values transmittedby one or more traders. The storage device further contains a serverprogram for controlling processor 220. Processor 220 uses the serverprogram to transact the purchase and sale of the fixed income relatedinstruments and to perform the above-mentioned systems and methods.

Back office clearing center 114 may include processor 228, display 230,input device 232, and memory 234, which may be interconnected. In apreferred embodiment, memory 234 contains a storage device for storing aclearing program for controlling processor 228. Processor 228 may usethe clearing program to complete the transactions that are entered intoby the traders. Processor 228 uses the clearing program to furtherverify that the transactions are completed and cleared.

Thus, systems and methods for providing enhanced volume-weighted averageprice trading are provided. Persons skilled in the art will appreciatethat the present invention can be practiced by other than the describedembodiments, which are presented for purposes of illustration and not oflimitation, and that the present invention is limited only by the claimswhich follow.

1. A method for providing trading of an item using an enhancedvolume-weighted average price, the method comprising: using one or moreprogrammed computers to determine a starting value for the enhancedvolume-weighted average price for a sampling period; using one or moreprogrammed computers to determine the enhanced volume-weighted averageprice when new information becomes available, wherein the newinformation relates to at least one of a new unmatched bid, a newunmatched offer, and a new trade; using one or more programmed computersto determine a final enhanced volume-weighted average price when thesampling period ends; and using one or more programmed computers topublish the final enhanced volume-weighted average price for use as aprice to settle a contract.
 2. The method of claim 1 wherein theenhanced volume-weighted average price is${{trade\_ flag}*\left( \frac{\begin{matrix}\left( {{{trade\_ price}_{t}*{trade\_ size}_{t}} +} \right. \\\left. {{eVWAP}_{t - 1}*{total\_ trade}{\_ size}_{t - 1}} \right)\end{matrix}}{{total\_ trade}{\_ size}_{t}} \right)} + {{bidoffer\_ flag}*{\left( {{eVWAP}_{t - 1} + \frac{\begin{matrix}{{bid\_ flag}*\left( \frac{{bid\_ size}_{t}^{{bid\_ size}{\_ flag}}}{{total\_ trade}{\_ size}_{t - 1}} \right)^{{trade\_ size}{\_ flag}}*} \\{{bid\_ size}{\_ ratio}^{{bid\_ ratio}{\_ flag}}*\left( {{bid}_{t} - {eVWAP}_{t - 1}} \right)}\end{matrix}}{\left( {1 + {{bid\_ scaling}{\_ factor}*{{{bid}_{t} - {eVWAP}_{t - 1}}}}} \right)^{bid\_ exponent}} + \frac{\begin{matrix}{{offer\_ flag}*\left( \frac{{offer\_ size}_{t}^{{offer\_ size}{\_ flag}}}{{total\_ trade}{\_ size}_{t - 1}} \right)^{{trade\_ size}{\_ flag}}*} \\{{offer\_ size}{\_ ratio}^{{offer\_ ratio}{\_ flag}}*\left( {{offer}_{t} - {eVWAP}_{t - 1}} \right)}\end{matrix}}{\left( {1 + {{offer\_ scaling}{\_ factor}*{{{offer}_{t} - {eVWAP}_{t - 1}}}}} \right)^{offer\_ exponent}}} \right).}}$3. The method of claim 1 wherein the using one or more programmedcomputers to determine the enhanced volume-weighted average pricecomprises using one or more programmed computers to determine theenhanced volume-weighted average price when a specified time intervalelapses.
 4. The method of claim 1 wherein the new information comprisesa change in at least one of a price and a size of an existing unmatchedbid or existing unmatched offer.
 5. The method of claim 1 wherein thenew information relating to the new trade causes a greater change to theenhanced volume-weighted average price than the new unmatched bid or newunmatched offer.
 6. The method of claim 1 wherein the using one or moreprogrammed computers to determine the enhanced volume-weighted averageprice further comprises using one or more programmed computers to adjustthe enhanced volume-weighted average price towards a new unmatched bidprice or a new unmatched offer price.
 7. The method of claim 6 whereinthe using one or more programmed computers to adjust the enhancedvolume-weighted average price further comprises using one or moreprogrammed computers to adjust the enhanced volume-weighted averageprice lower if the new unmatched bid price or the new unmatched offerprice is lower than the enhanced volume-weighted average price.
 8. Themethod of claim 6 wherein the using one or more programmed computers toadjust the enhanced volume-weighted average price further comprisesusing one or more programmed computers to adjust the enhancedvolume-weighted average price higher if the new unmatched bid price orthe new unmatched offer price is higher than the enhancedvolume-weighted average price.
 9. The method of claim 1 wherein thestarting value for the enhanced volume-weighted average price isdetermined at least in part by a bid-offer spread.
 10. The method ofclaim 1 wherein the using one or more programmed computers to determinethe enhanced volume-weighted average price is based at least in part ona total trade size and wherein the new unmatched bid or the newunmatched offer causes less of a change to the enhanced volume-weightedaverage price as the total trade size increases during the samplingperiod.
 11. The method of claim 1 wherein a first new unmatched bid oroffer causes a greater adjustment to the enhanced volume-weightedaverage price than a second new unmatched bid or offer that is furtherfrom the reference price than the first new unmatched bid or offer. 12.The method of claim 1 wherein at a beginning of the sampling period theonly part of the new unmatched bid or new unmatched offer that is usedin determining the enhanced volume-weighted average price is the priceof the new unmatched bid or new unmatched offer.
 13. The method of claim1 wherein the new unmatched bid or the new unmatched offer is only usedin determining the enhanced volume-weighted average price when the newunmatched bid or the new unmatched offer is within a predetermined pricerange.
 14. The method of claim 1 wherein the using one or moreprogrammed computers to publish the final enhanced volume-weightedaverage price comprises posting the final enhanced volume-weightedaverage price to a server.
 15. An apparatus having a server, theapparatus for providing trading of an item using an enhancedvolume-weighted average price, the apparatus comprising: a serverstorage device; a server processor connected to the server storagedevice, the server storage device storing a service program forcontrolling the server processor; the server processor operative withthe server program to: determine a starting value for the enhancedvolume-weighted average price for a sampling period; determine theenhanced volume-weighted average price when new information becomesavailable, wherein the new information relates to at least one of a newunmatched bid, a new unmatched offer, and a new trade; determine a finalenhanced volume-weighted average price when the sampling period ends;and publish the final enhanced volume-weighted average price for use asa price to settle a contract.
 16. The apparatus of claim 15 wherein theenhanced volume-weighted average price is${{trade\_ flag}*\left( \frac{\begin{matrix}\left( {{{trade\_ price}_{t}*{trade\_ size}_{t}} +} \right. \\\left. {{eVWAP}_{t - 1}*{total\_ trade}{\_ size}_{t - 1}} \right)\end{matrix}}{{total\_ trade}{\_ size}_{t}} \right)} + {bidoffer\_ flag} + {\left( {{eVWAP}_{t - 1} + \frac{\begin{matrix}{{bid\_ flag}*\left( \frac{{bid\_ size}_{t}^{{bid\_ size}{\_ flag}}}{{total\_ trade}{\_ size}_{t}} \right)^{{trade\_ ratio}{\_ flag}}*} \\{{bid\_ size}{\_ ratio}^{{bid\_ ratio}{\_ flag}}*\left( {{bid}_{t} - {eVWAP}_{t - 1}} \right)}\end{matrix}}{\left( {1 + {{bid\_ scaling}{\_ factor}*{{{bid}_{t} - {eVWAP}_{t - 1}}}}} \right)^{bid\_ exponent}} + \frac{\begin{matrix}{{offer\_ flag}*\left( \frac{{offer\_ size}_{t}^{{offer\_ size}{\_ flag}}}{{total\_ trade}{\_ size}_{t}} \right)^{{trade\_ ratio}{\_ flag}}*} \\{{offer\_ size}{\_ ratio}^{{offer\_ ratio}{\_ flag}}*\left( {{offer}_{t} - {eVWAP}_{t - 1}} \right)}\end{matrix}}{\left( {1 + {{offer\_ scaling}{\_ factor}*{{{offer}_{t} - {eVWAP}_{t - 1}}}}} \right)^{offer\_ exponent}}} \right).}$17. The apparatus of claim 15 wherein the server program is furtherconfigured to determine the enhanced volume-weighted average price whena specified time interval elapses.
 18. The apparatus of claim 15 whereinthe new information comprises a change in at least one of a price and asize of an existing unmatched bid or existing unmatched offer.
 19. Theapparatus of claim 15 wherein the new information relating to the newtrade causes a greater change to the enhanced volume-weighted averageprice than the new unmatched bid or new unmatched offer.
 20. Theapparatus of claim 15 wherein the server program is further configuredto adjust the enhanced volume-weighted average price towards a newunmatched bid price or a new unmatched offer price.
 21. The apparatus ofclaim 20 wherein the server program is further configured to adjust theenhanced volume-weighted average price lower if the new unmatched bidprice or the new unmatched offer price is lower than the enhancedvolume-weighted average price.
 22. The apparatus of claim 20 wherein theserver program is further configured to adjust the enhancedvolume-weighted average price higher if the new unmatched bid price orthe new unmatched offer price is higher than the enhancedvolume-weighted average price.
 23. The apparatus of claim 15 wherein thestarting value for the enhanced volume-weighted average price isdetermined at least in part by a bid-offer spread.
 24. The apparatus ofclaim 15 wherein the server program is further configured to determinethe enhanced volume-weighted average price based at least in part on atotal trade size and wherein the new unmatched bid or the new unmatchedoffer causes less of a change to the enhanced volume-weighted averageprice as the total trade size increases during the sampling period. 25.The apparatus of claim 15 wherein a first new unmatched bid or offercauses a greater adjustment to the enhanced volume-weighted averageprice than a second new unmatched bid or offer that is further from areference price than the first new unmatched bid or offer.
 26. Theapparatus of claim 15 wherein at a beginning of the sampling period theonly part of the new unmatched bid or new unmatched offer that is usedin determining the enhanced volume-weighted average price is the priceof the new unmatched bid or new unmatched offer.
 27. The apparatus ofclaim 15 wherein the new unmatched bid or the new unmatched offer isonly used in determining the enhanced volume-weighted average price whenthe new unmatched bid or the new unmatched offer is within apredetermined price range.
 28. The apparatus of claim 15 wherein theserver program is further configured to post the final enhancedvolume-weighted average price to a server.
 29. An apparatus having aserver, the apparatus for providing trading of an item using an enhancedvolume-weighted average price, wherein the server includes a serverprogram configured to: determine a starting value for the enhancedvolume-weighted average price for a sampling period; determine theenhanced volume-weighted average price when new information becomesavailable, wherein the new information relates to at least one of a newunmatched bid, a new unmatched offer, and a new trade; determine a finalenhanced volume-weighted average price when the sampling period ends;and publish the final enhanced volume-weighted average price for use asa price to settle a contract.